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Warrant Question for my understanding, please help :)

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Frequent Contributor
SB OML CL Can someone be so kind as to read my question regarding this warrant? I think i understand it now but i'd like to be certain if my calculations are correct. Details of warrant SB OML CL : Name: SB OML 950CL 6:1DEC09 Issuer: Standard Bank Underlying share: OLDMUTUAL Exercise Price: R 9.50 Expiry Date: 01 Dec 2009 Type: American Call Conversion Ratio: 6.00 Delta: 74.49% Implied Volatility: 92.79% Gearing: 2.62 Weekly time decay (theta): -2.20% Days To Expire: 102 Last Updated: 19 Aug 2009 So lets assume i buy 10 000 warrants @ a total cost of 57c each = R5700 in total. I'm now entitled to 10 000 / 6 (conversion ratio) = 1667 OML shares should i decide to exercise them on expiry date. Therefore lets assume that on 1 december 2009, the expiry date, OML is trading on the market @ 12.90. In that case my total costs will be Warrant cost of R5700 + exercise price of (R9.50x 1667) = R21 536 Should i then sell my 1667 OML shares directly on the market, i will be make 1667 x 12.90 = R21504. So in that case , i'll be breaking even just about, exl lets say R200 worth of brokerage costs. So in other words I must hope that by 1 December 2009 (exercise date) that OML is trading at least above R12.90 before making any profits. So lets then assume that on 1 December 2009 OML is trading on the open market @ 15.00 I will then be entitled to make R15.00 x 1667 = R25005 by selling them on the open market (MINUS) the warrant + exercise cost of R21536 = R3469 profit Therefore 3468 / 5700 = 60% profit as opposed to making (R5700 x ((15-11.70) / (11.70)) = 28% had i just bought R5700 shares on the open market and sold them. Is this correct the way i see it? Also if lets say for some peculiar reason OML shares go down to R4 and i don't exercise it, i then lose my R5700 premium i paid for the option right?
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Would be lovely if it left spaces in between as i had written it but hopefully you guys can make out whats going on still :)
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Please excuse me - I'm just trying my hand at basic HTML: SB OML CL Can someone be so kind as to read my question regarding this warrant? I think i understand it now but i'd like to be certain if my calculations are correct. Details of warrant SB OML CL : Name: SB OML 950CL 6:1DEC09 Issuer: Standard Bank
Underlying share: OLDMUTUAL
Exercise Price: R 9.50
Expiry Date: 01 Dec 2009
Type: American Call Conversion
Ratio: 6.00 Delta: 74.49%
Implied Volatility: 92.79%
Gearing: 2.62
Weekly time decay (theta): -2.20%
Days To Expire: 102
Last Updated: 19 Aug 2009 So lets assume I buy 10 000 warrants @ a total cost of 57c each = R5700 in total. I'm now entitled to 10 000 / 6 (conversion ratio) = 1667 OML shares should i decide to exercise them on expiry date. Therefore lets assume that on 1 December 2009, the expiry date, OML is trading on the market @ 12.90. In that case my total costs will be Warrant cost of R5700 + exercise price of (R9.50x 1667) = R21 536 Should i then sell my 1667 OML shares directly on the market, i will be make 1667 x 12.90 = R21504. So in that case , i'll be breaking even just about, exl lets say R200 worth of brokerage costs. So in other words I must hope that by 1 December 2009 (exercise date) that OML is trading at least above R12.90 before making any profits. So lets then assume that on 1 December 2009 OML is trading on the open market @ 15.00 I will then be entitled to make R15.00 x 1667 = R25005 by selling them on the open market (MINUS) the warrant + exercise cost of R21536 = R3469 profit Therefore 3468 / 5700 = 60% profit as opposed to making (R5700 x ((15-11.70) / (11.70)) = 28% had i just bought R5700 shares on the open market and sold them. Is this correct the way i see it? Also if lets say for some peculiar reason OML shares go down to R4 and i don't exercise it, i then lose my R5700 premium i paid for the option right?
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Valued Contributor
yip you rmath is correct .. but making a profit is not only dependent on OML price at or near expiry .. it is also a factor of time an intrinsic value, so you can profit in a smaller time frame if it moves ..
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Frequent Contributor
Simon are u referring to trading the warrant, i.e if OML's market price moves to 12.40 then the warrant price moves to about 64c, I'll be able to sell my current warrants @ 64c, Therefore making a profit on the warrant premium if i can call it that ?
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Simon, i read somewhere that std bank charges a flat R50 for warrant trades. However when purchasing the oml warrant earlier today, i noticed that i got charged the normal brokerage rates of R70.. Where am i missing the plot?
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Frequent Contributor
A warrant tracks the value of its underlying share or index throughout its entire lifecycle. You should trade your warrant well before it is due to expire (90 days and more) and take advantage of the price movements of the underlying during that period. The projected value at expiry is of academic value only, because you will probably not be holding the warrant at expiry. As far as the cost to trade, from what I understand the special rate per trade is valid only on a warrants account, i.e. an account that you can only trade warrants on. If you trade warrant on a normal share account, you pay normal rates.
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Valued Contributor
to the first Q - yes .. an you got charged R70 because you didn't trade the warrant in a warrant account .. on the menu == other products == warrant registration .. the new warrant account will open over night ..
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Frequent Contributor
Thanks guys, i'll set up the warrant account and use that in future :)
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Regular Contributor
If you really want go the exercise route, american call can be exersiced any time before expiry. Europen call only at expiry date.
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Frequent Contributor
The current warrant i have is an american call. How would one go about exercising it? just for interests sakes
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Regular Contributor
Need to notify isuer 7 days in advance i think. Suppose OST will handle that for you.
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Valued Contributor
contact out call center .. but exercising is a losers game as you give away time value ..
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Frequent Contributor
2 questions.. When u talking about time value my understanding is that the warrant loses value the closer it gets to expiry which makes sense. Does this also mean that the price matrix is adjusted thereby your opportunity to profit from the underlyings movements is less as well? Second question, does the issuer of the warrant (e.g STD bank) play a role in liquidity of the warrant, i.e buying/selling ? or is that actual buyers/sellers of the warrants like you and I ?
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